chapter 13 powerpoint author: luann bean, ph.d., cpa, cia, cfe copyright © 2014 mcgraw-hill...
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CHAPTER CHAPTER 1313
PowerPoint Author:LuAnn Bean, Ph.D., CPA, CIA, CFE
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Factors in Communicating Factors in Communicating Useful InformationUseful Information
The primary objective of accounting is to provide information useful for decision making. To provide
information that supports this objective, accountants must consider the following:
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Methods of AnalysisMethods of Analysis
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Milavec Company Milavec Company Financial StatementsFinancial Statements
2015 2014
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Milavec Company Balance SheetsMilavec Company Balance Sheets
2015 2014
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Horizontal and Horizontal and Percentage AnalysisPercentage Analysis
Horizontal analysis (or trend analysis) refers to studying the behavior of
individual financial statement items over several accounting periods.
Absolute Amounts
Percentage Analysis
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Milavec Company Milavec Company Horizontal AnalysisHorizontal Analysis
2015 2014
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Vertical AnalysisVertical Analysis
Vertical analysis Vertical analysis uses percentages to compare
individual components of financial statements to a key statement figure. A common-common-sizesize financial statement is a vertical analysis in which
each financial statement item is expressed as a
percentage.
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Vertical Analysis of Vertical Analysis of Income StatementIncome Statement
In income statements, all
items are usually
expressed as a percentage of
sales.
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Milavec Company Milavec Company Vertical AnalysisVertical Analysis
2015 2014
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Vertical Analysis of Vertical Analysis of Balance SheetBalance Sheet
In balance sheets, all items
are usually expressed as a percentage of total assets.
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2014 2015
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Liquidity RatiosLiquidity RatiosLiquidity ratios indicate a
company’s ability to pay short-term debts. They focus on current assets and current
liabilities.
1. Working Capital
2. Current Ratio
3. Quick Ratio
4. Accounts Receivable Ratios
5. Inventory Ratios
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Solvency RatiosSolvency Ratios
Solvency ratios are used to analyze a company’s long-term debt-
paying ability and its financing structure.
1. Debt to Assets Ratio
2. Debt to Equity Ratio
3. Number of Times Interest Earned
4. Plant Assets to Long-Term Liabilities
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Profitability RatiosProfitability Ratios
Profitability ratios measure a company’s ability to generate
earnings.
1. Net Margin (or Return on Sales)
2. Asset Turnover Ratio
3. Return on Investment
4. Return on Equity
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Stock Market RatiosStock Market Ratios
Stock market ratios analyze the earnings and dividends of a
company.
1. Earnings Per Share
2. Book Value
3. Price-Earnings (PE) Ratio
4. Dividend Yield
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Limitations of Financial Limitations of Financial Statement AnalysisStatement Analysis
Different Industries
Changing Economic
Environment
Accounting Principles
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End of Chapter 13End of Chapter 13